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Can Eli Lilly & Co. Recover From Expensive Failures?

On Monday, Eli Lilly(NYSE:LLY) announced an abrupt end to another large phase 3 clinical trial, just as things were beginning to look up for the beleaguered drugmaker.

Recently posted data from its next-generation diabetes therapy made it seem like things were finally beginning to turn around. But those hopes were quickly dashed away when the company announced it would be terminating a 12,000 patient trial early because of lack of efficacy. The drug, evacetrapib, wasn't the first of its kind to flop in the clinic, but its potential was considered significant to Lilly's growth, and the stock ended the day 7.8% lower in answer to the news.

Source: Eli Lilly & Co.

This novel inhibitor of cholesterylester transfer protein essentially prevents CETP from transferring cholesterol bound to fatty acids from high-density lipoproteins to low-density lipoproteins. In other words, it boosts "good" cholesterol while reducing the "bad" kind. People with CETP deficiencies have been shown to exhibit reduced risk of coronary heart disease, so inhibiting the protein with a drug like evacetrapib should lead to a similar effect. Unfortunately, human physiology refused to cooperate.

The trial with high-risk atherosclerotic cardiovascular disease patients intended to measure the time to first occurrence of heart attack, stroke, or other events that lead to cardiovascular death. There was so little chance the trial would show a significant improvement over placebo that data monitors suggested it be put to rest. The question now is whether Lilly will cut its losses and abandon evacetrapib, or try another angle at great expense.

Warning signsThe failure of evacetrapib didn't come as much of a surprise since the CETP class has a history of failure. In 2012, Roche showed its CETP inhibitor, dalcetrapib, raised HDL-cholesterol levels, but failed to reduce clinical events.

Going back even further, in 2006, Pfizer halted a phase 3 trial with its CETP inhibitor, torcetrapib, because of safety concerns. In the 15,000 patient Illuminate trial, 82 patients receiving torcetrapib with a statin died, versus 51 patients in the statin-only arm.

Lost decadeIn all fairness, Lilly's recently halted trial began several months after Roche's dalcetrapib failed. With such a large undertaking lined up, I don't think anybody can fault the company for going forward at that time. Late-stage failures aren't the most common, but they happen to even the best companies.

What makes this setback so frustrating is that Lilly seems to be prone to expensive failures that have left its bottom line stagnating for the past 10 years.

A few years back, tabalumab failed two phase 3 rheumatoid arthritis studies due to lack of efficacy. Undaunted, the company pushed on with the failed compound in a large phase 3 lupus trial that ended last October without anything to show for it.

Pivoting after failure is becoming a theme for Lilly that has extended to one of the most daunting of all indications: Alzheimer's. When solanezumab failed two phase 3 trials, the company quickly pointed to data suggesting that starting therapy earlier may significantly slow disease progression. This summer, the company puffed its chest out with data that suggest a lasting gap in disease progression between those dosed with solanezumab to begin the Expedition 1 and 2 trials, and the placebo group that began solanezumab dosing 2 years later. The gap suggests disease-modifying activity, which is exciting, but I'd be shocked if it were enough to impress regulators.

Hope springs eternalFruitless spending on clinical trials is such a prominent feature of Lilly's recent history that it is now America's least profitable drugmaker. If Lilly would just learn when to quit instead of throwing money at programs with little chance of success, this might not be the case.

Currently, my fear for Lilly is that recent genetic analysis of Roche's CETP inhibitor, dalcetrapib, may lead to a more targeted study of evacetrapib down the road. Although dalcetrapib failed to reduce clinical events among the 8,000 acute coronary syndrome patients in the dal-Outcomes study, it significantly reduced atherosclerosis as measured by carotid intima-media thickness for patients with a specific mutation, representing about 20% of the patient pool.

The company has stated it will conclude other studies in the evacetrapib program. Here's hoping that when results from the evacetrapib study are analyzed, they don't elucidate a dubious benefit for a subset of patients, and cause management to go back on its word.

A recent homerun in type 2 diabetes could bolster earnings in the near- to mid-term. Partnerships with Incyte in immunology and AstraZeneca in oncology had the market excited about its longer-term prospects. Lilly has what it needs to recover from its string of phase 3 failures, but its recovery will go much smoother once it learns to cut losses and move on.